Monday, May 24, 2010

President Obama and Democrats on Capitol Hill are publicly fretting about the dangers of spending and debt, which can mean only one thing: Another big spending "stimulus" bill is in the works. And sure enough, the House plans to vote this week on $190 billion in new spending, $134 billion of which it won't even pretend to pay for.

Sander Levin, the new Ways and Means Chairman, calls this exercise the American Jobs and Closing Tax Loopholes Act. Mr. Levin has waited 28 years to ascend to this throne and this is the best he can do? "Jobs" were also the justification in February 2009 for the $862 billion stimulus that has managed to hold the jobless rate down to a mere 9.9%. Maybe Mr. Levin's spending can hold it down to even greater heights.
The nearby table gives a flavor of what's in this grab bag of political payoffs, corporate welfare and transfer payments. There's $24 billion to help states pay the exploding tab for Medicaid, the same program that ObamaCare expands by some 16 million new recipients. The bill also offers $1 billion for summer jobs for teens, whose jobless rate is 25.4%. Congress could do far more to create teen jobs if it merely suspended last year's minimum wage increase to $7.25 an hour, which priced millions of young workers out of the labor market. But that would be too rational.

The biggest item is $65 billion to prevent a 21% cut in Medicare physician reimbursements. Democrats promised this to the American Medical Association in return for its ObamaCare support, but they left the $65 billion out of the health-care law to make it look less expensive. Now they're pushing it through under separate cover when they assume the press corps won't notice.
The $47 billion to extend unemployment insurance to nearly two full years will bring the total spent on this program to $137 billion during this recession—five times more than in either of the prior two recessions. That's nearly as much as the federal corporate income raised in 2009.
The sages in Congress continue to claim that these payments for not working will lead to more work. Representative Jim McDermott recently declared on the House floor that jobless payments are "one of the most effective forms of economic stimulus" because "every unemployment dollar spent returns $1.64 of economic benefits." So let's lay off everybody, pay them for not working, and watch the economy really boom. Where do they teach this stuff?

This bill is also one of the most expensive corporate welfare giveaways in recent years with subsidies for municipal bond traders, cotton farmers, yarn producers, sheep growers, Hawaiian sugar cane cooperatives, motor sports businesses, renewable energy firms, the steel lobby, and so on. Any industry that doesn't get a tax credit or other handout in this bill should fire its lobbyist.
All of this is "paid for," in the Beltway lingo, with a net tax increase on business of about $40 billion and at least $134 billion of new debt. There's a new 24 cent a barrel tax on oil companies, which would flow to consumers in higher gas prices, because Congress says the industry's profits are excessive.

U.S. multinational companies would pay a higher tax rate on their overseas income, which will not help them create more jobs here. The better way to discourage job outsourcing is to cut the corporate income tax rate, but Mr. Levin and his union allies will have none of that. Managers of private equity and venture capital firms that provide the start-up and expansion funding to businesses would see their tax rate rise to as high as 35% from 15% today—a huge tax increase when businesses are starved for capital. And small, often family-owned Subchapter S companies that provide professional services would be required to subject more of their profits to the self-employment tax. These firms already pay up to 35% tax on these profits, so under the Democratic plan their tax rate could reach 50%.

Perhaps you're wondering what happened to the "pay as you go" budget rules that Mr. Obama announced to great media fanfare as recently as February. Democrats now say "paygo" doesn't apply because this spending qualifies as an "emergency." But while the new spending isn't paid for, Democrats are insisting that the bill's extension of the R&D tax credit and small business depreciation allowance must be offset by the tax increases.

Oh, and by the way, the President is unveiling a new line-item veto proposal this week to "rein in wasteful spending and hold Congress accountable," as Senator John Kerry put it yesterday in a press release. If any of them were remotely serious, they'd start by line-item vetoing this entire bill.

Christopher Hitchens: 'I was right and they were wrong'
http://www.guardian.co.uk/books/2010/may/22/christopher-hitchens-decca-aitkenhead
From hero of the left to neocon turncoat, and still battling on: Christopher Hitchens talks to Decca Aitkenhead about old arguments and his new memoir

The Road To Economic Serfdom. By Peter Boone and Simon Johnson
http://baselinescenario.com/2010/05/23/the-european-road-to-economic-serfdom/

We take our policy victories wherever we can get them amid Washington's march to Europe-dom, so we're pleased to report that the Senate finance reform that passed last week did not contain new regulations on investors who finance start-up companies.

Chris Dodd's original draft contained numerous provisions targeting angel investors, the wealthy individuals who directly fund innovative new businesses that are still too small to attract venture capital. Currently they can do so with minimum government interference, but the bill would have subjected entrepreneurs seeking angel capital to a 120-day Securities and Exchange Commission review, which would ensure that many of these budding companies die a slow bureaucratic death. Angel investors would also have been subject to net worth and income requirements more than double today's, as well as a 50-state regulatory scheme that would replace today's single federal standard.

This attack on the businesses that create most new jobs in the U.S. and had nothing to do with 2008's financial panic was too much even for the Senate, which removed these restrictions in an uncontroversial voice vote earlier this month. Special credit goes to Missouri Republican Kit Bond, who led the charge, though Mr. Dodd and other Democrats cosponsored Mr. Bond's amendment and at least had the sense to recognize a mistake.

Still, the fact that such a destructive provision made it that far shows how little the Members and staff now running Congress understand about wealth creation and the sources of American prosperity.

Washington's $1 Trillion Opportunity - It's been 60 years since we streamlined our federal government. These days there are plenty of savings to be found.
http://online.wsj.com/article/SB10001424052748704113504575264463277182700.html

Multinational banks: They did not run away during the crisis. By Giacomo Calzolari Micol Levi Giorgio Barba Navaretti Alberto Franco Pozzolo
http://www.voxeu.org/index.php?q=node/5083

Federal President Ignores Sudan's Genocide - African hopes are fading as the U.S. lets President Omar al-Bashir escape justice
http://online.wsj.com/article/SB10001424052748704113504575264273090491244.html

The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis
http://www.cbo.gov/doc.cfm?index=11524